Video: Gold mining faces a cliff after 2025, CRU analyst predicts
Global gold production will peak at about 3,250 tonnes (105 million oz.) next year, according to CRU's Oliver Blagden.
With the bull market in precious metals likely to accelerate in the coming years, folks should turn a great of their attention towards finding the growth stocks of the bull market. We are talking about your Ciscos and Microsofts. These are the stocks one can hold for at least several years.
However, the mining industry is quite different. There are various stages of a mining company (exploration, development, production) and most mining companies remain at the same stage before they are acquired or eventually dissolved. In other words, don’t expect to find the next Newmont or Yamana Gold from the exploration patch. Most exploration companies won’t even become development companies. Most junior development companies won’t even become mid-tier or intermediate producers. Finally, most of the successful companies will be taken over quickly. So then how can we find companies that are poised to grow and evolve over the next three to four years?
For our subscribers we unveiled our top five core junior holdings for the next few years. In looking at each company, we found a number of common characteristics. So what are those characteristics? Here are things to look for.
These companies will already be producers. They need to have significant assets in the ground (mostly in the proven and probable and measured and indicated category) which are mineable or can become mineable in the near-term. Look for companies that in the next few years have potential production growth from more than a single mine. One of our favored gold companies is ramping up production at one of its mines and will work to put a second larger mine in production in the near-term. It also has a third property which could easily become a mine.
We want companies that have tight share structures with minimal dilution. A tighter share structure means the stock can move more quickly than most of its peers. It also is a way to grade management. Management has done well if the company has less than 100 million shares and has built a large mine or multiple mines. Management has not done well if the company has over 100 million shares without a mine or significant multi-million ounce resource in place.
Furthermore, management should be experienced with a strong track record. The track record should include success at a former company, building mines and the ability to finance projects in a non-dilutive way. In other words, look for a management team that will be serious about building a producing company and not just building a single mine. If the management team lacks these characteristics, then the company cannot be a core holding.
Aside from a tight share structure, these companies should show both operational and financial success. Operationally, we want to see smoothness and not continuous hiccups. Financially, we want to see companies that have healthy cash positions and are churning out increasing cash flows at these metals prices. We don’t need to see significant financial prowess as that would mean we are late to the game. We want to see enough to ensure safety yet not so much that it is a high base for future growth.
As far as market cap, we prefer in the $300-$600 Million range. These are companies which you can envision becoming $2-$5 Billion (in market cap) in the next several years. To begin with, they are large enough that they are liquid and relatively stable. Yet, they are not so large that they can’t rise five or ten fold in the next several years.
There you have it. Now you have some help and can start looking for the core holdings of the next phase of the bull market in precious metals. Or you could consult a professional who has already done the work and research. Our top 5 core holdings report just went out to subscribers. Consider a free 14-day trial to our service as we unveil what could be the biggest winners as Gold moves to $2000/oz and Silver to $50/oz.
Jordan Roy-Byrne, CMT
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